Consolidation and layoffs are expected to hit the steel industry after the World Trade Organization ruled yesterday that U.S. tariffs were illegal.

Labor leaders say cheap imported steel will drive producers out of business, and perhaps a quarter of the nation’s 150,000 or so steelworkers could lose their jobs.

But if the U.S. doesn’t adhere to the WTO ruling, the European Union could levy $2.2 billion in trade sanctions.

After the WTO action, President Bush said he’ll press for “free and fair” trade.

“My job is to make sure we have a level playing field,” Bush told workers at a BMW automobile plant in Greer, S.C. “We want you to be able to sell what you make here overseas, because if you are not selling these cars overseas, some of you may not be working.”

Analysts say the Bush administration, which had promised to protect steelworkers, will repeal the tariffs – if not for economic reasons, then political ones.

The first target of EU sanctions would be citrus from Florida, a key state in next year’s election.

“Bush wanted to get rid of this,” said Charles Bradford, a steel industry analyst with Bradford Research. “It’s politically easier if the WTO does it for him.”

Bradford, however, thinks a tougher industry decision has already been made.

In December of last year, the union agreed to turn retirees’ pension plans over to the government, which angered workers but freed the companies of crippling legacy debts.

The move set off a wave of consolidation, which should only accelerate if the tariffs are repealed.

That’s a positive move, said Dan Ikenson of the Center for Trade Policy Studies at the Cato Institute.

The U.S. has 75 steel producers, which are too inefficient to effectively compete, Ikenson said. He added that steel users, which suffered under the tariffs because of higher costs, employ 57 workers to every one steel worker.

“With interest rates so low, what more can the administration do to spur the economy?” Ikenson asked. “How about a tax cut to industry by revoking the tariffs?”

Ikenson worried, however, that legislators would use this decision to battle the unpopular WTO.

“Right now everyone is so worried about China complying with the WTO,” Ikenson said. “Well, we could set a good example by not blowing off this decision.”With Post wires